5 Stocks Under $10 Set to Soar - views

WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street where stocks trading near or under $10 a share don’t experience massive spikes higher. Traders savvy enough to follow the low-priced names and trade them with discipline and sound risk management are banking ridiculous coin on a regular basis.

Just take a look at some of the hot movers in the under-$10 complex from Wednesday, including Life Partners (LPHI), which skyrocketed higher by 150%; Star Scientific (STSI), which trended up by 14%; CalAmp (CAMP), which ripped higher by 13%; and Dial Global (DIAL), which closed up 11.9%. You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.

One low-priced stock that I recently highlighted that went on to rip to the upside was Dara BioSciences (DARA). I featured DARA in Aug. 30's “5 Stocks Under $10 Set to Soar Higher” article at around 84 cents per share. I mentioned that DARA had been trending sideways between 65 cents and 77 cents per share, and it was just starting to break out above the high-end of that sideways chart pattern with strong volume. I mentioned that DARA was setting up to trigger another major breakout if it cleared 85 to 98 cents per share with strong upside volume.

Guess what happened? Shares of DARA triggered that breakout with monster upside volume in the middle of September. Once DARA cleared 85 to 98 cents with volume, the stock went on to hit a recent high of $1.38 a share. That’s a massive move higher in a very short timeframe from when I wrote that article. The best part about this breakout is that you had price, volume and trend all working together. Shares of DARA still look bullish and ready to challenge that $1.38 area as long as the stock can hold a trend above some near-term support at $1.03 a share.

Low-priced stocks are something that I tweet about on a regular basis. I frequently flag high-probability setups, breakout candidates and low-priced stocks that are acting technically bullish. I like to hunt for low-priced stocks that are showing bullish price and volume trends, since that increases the probability of those stocks heading higher.

I’m not as eager to recommend investing long-term in stocks that trade less than $10 a share because these names can be very speculative, and the odds for picking the long-term winners aren’t great. But I definitely love to trade stocks that are priced below $10. I like to view them as a trading vehicle with lots of volatility and lots of upside when the trade is timed right.

When I trade under-$10 names, I do it almost entirely based off of the charts and technical analysis. I also like to find under-$10 names with a catalyst, but that’s secondary to the chart and volume patterns.

An under-$10 stock in the software complex that’s trading within range of triggering a near-term breakout trade is FalconStor Software (FALC), which is engaged in disk-based data protection. This stock has been hit hard by the sellers during the last six months, with shares off by around 35%.

If you take a look at the chart for FalconStor Software, you’ll notice that this stock hit a near-term bottom at $1.69 in mid-August. Since tagging that low, shares of FALC have started to uptrend with shares now changing hands at around $2.30 a share. During that uptrend, shares of FALC have mostly made higher lows and higher highs, which is bullish technical price action. That move is now pushing FALC within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in FALC once it breaks out above some near-term overhead resistance at $2.43 to $2.66 a share, and then once it clears $2.83 to $2.85 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average volume of 105,153 shares. If that breakout triggers soon, then FALC will have a great chance of re-testing or possibly taking out its next major overhead resistance levels at $3.58 to $3.96 a share.

Traders can now look to buy FALC off weakness and simply use a stop somewhere around $2.10 a share. A better strategy might be to buy off strength once FALC clears its 200-day moving average at $2.66 with high-volume and then use a stop at round $2.40 a share.

Rosetta Genomics

An under-$10 stock in the biotechnology and drugs complex that’s setting up to trigger a major breakout trade is Rosetta Genomics (ROSG), which develops and commercializes diagnostic tests based on microRNAs. This stock has been on fire so far in 2012, with shares up a whopping 170%.

If you take a look at the chart for Rosetta Genomics, you’ll see that this stock recently spiked back above both its 50-day and 200-day moving averages with above-average volume. This move has also pushed ROSG back above some near-term overhead resistance at $6.87 to $7.19 a share with decent volume. Now ROSG is flirting with some more overhead resistance at $7.56 a share, which is quickly pushing the stock into breakout territory.

Market players should now look for long-biased trades in ROSG as long as it’s trending above those overhead resistance levels at $7.19 to $7.56 a share with strong upside volume flows. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 1.7 million shares. If ROSG can maintain that trend, then this stock has a great chance of trending higher back towards its next significant overhead resistance levels at $11.47 to $12.87 a share.

Traders can now look to buy ROSG off any weakness and simply use a stop that sits just below some near-term support at $6.90 a share. One could also buy ROSG off strength as long as it’s rending above $7.19 with strong upside volume flows. Keep in mind that ROSG has hit an intraday high today of $7.73 a share, so that is another reference point that breakout traders should watch.

Pozen

Another under-$10 name in the biotechnology and drugs complex that’s trading very close to triggering a near-term breakout trade is Pozen (POZN), which develops products for the treatment of acute and chronic pain and other pain-related conditions in the U.S. This stock has been trending sharply higher so far in 2012, with shares up around 65%.

If you take a look at the chart for Pozen, you’ll notice that this stock has been trending sideways between $6 and $6.90 a share for the past two months and change. Shares of POZN just recently started to trend back above its 50-day moving average of $6.46 s share with a slight uptick in volume flows. That move is now pushing POZN within range of breaking out above some near-term overhead resistance levels.

Traders should now look for long-biased trades in POZN once it manages to break out above some near-term overhead resistance levels at $6.79 to $6.90 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 145,334 shares. If that breakout triggers soon, then POZN will have a great chance of re-testing or possibly taking out its next significant overhead resistance levels at $7.55 to $8.12 a share.

Traders can look to buy POZN off weakness with a stop that sits just below its 50-day moving average of $6.46 a share. One could also buy POZN off strength once it clears $6.79 to $6.90 a share with volume, and then simply use a stop at around $6.60 a share.

AspenBio Pharma

Another under-$10 name that’s trending within range of triggering a near-term breakout trade is AspenBio Pharma (APPY), a biomedical diagnostic company that develops products for human diagnostic and animal health therapeutic needs. This stock has been hammered by the bears so far in 2012, with shares down by over 65%.

If you take a look at the chart for AspenBio Pharma, you’ll see that this stock recently spiked up huge from around $1.50 to just over $2 a share with monster upside volume. That spike also took APPY back above its 50-day moving average of $1.67 a share. Since that large spike, shares of APPY have started to trend sideways between a range of $1.80 to $2.05 a share. A move outside of that range will likely setup APPY for its next major trend. If that move is to the upside, then APPY could break out and get into a previous gap from back in June.

Market players should now look for long-biased trades in APPY if it can manage to trigger a breakout above some near-term overhead resistance levels at $2.05 to $2.09 a share, and then once it takes out $2.25 a share with high volume. Look for a sustained move or close above those levels with volume that tracks in close to or near its three-month average action of 103,088 shares. If that breakout triggers soon, then APPY will have a great chance to re-fill some of its previous gap that started back at around $3.36 a share.

Traders can look to get long APPY off weakness and simply use a stop that sits right around some near-term support at $1.80 a share. One could also buy APPY off strength once it clears $2.05 to $2.09 a share and then add to that position once $2.25 a share is taken out with volume. If you get long off strength, then use a stop at around $1.90 a share.

Midstates Petroleum

One more under-$10 stock that’s trading very close to triggering a near-term breakout trade is Midstates Petroleum (MPO), which engages in oil and gas exploration and development. This stock is off to a nasty start in 2012, with shares down by over 40% so far.

If you take a look at the chart for Midstates Petroleum, you’ll notice that this stock recently tag a low at $7.30 a share after it plunged from over $15 a share. Following that low, shares of MPO have started to uptrend to its recent high of $9.23 a share. During that uptrend, shares of MPO have been making some higher lows and some higher highs, which is bullish technical price action. That move has now pushed MPO within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in MPO once it manages to break out above some near-term overhead resistance levels at $9.01 to $9.23 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 269,052 shares. If that breakout triggers soon, then MPO will have a great chance of re-testing or possibly taking out its next significant overhead resistance levels at $11 to $12 a share.

One could look to buy MPO as long as it’s trending above its 50-day moving average at $8.34 a share with strong upside volume flows. You could also buy off weakness and simply use a stop that sits just below its 50-day around some near-term support at $8.03 a share. One could also buy off strength once MPO clears those breakout levels with volume, and then simply use a stop at around $8.50 a share.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.